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FinCEN Geographic Targeting OrderEverything You Need To Know Before Closing A Reportable Transaction

August 18, 2016

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Today’s Topics• Background on FinCEN, the Bank Secrecy Act and Geographic Targeting

Orders• The Real Estate GTOs

– Who is covered– Which transactions– What to collect– How to collect

• The GTO’s impact on a real estate transaction• Questions

Today’s Speakers• Lawrence Scheinert: FinCEN – Director Office of Special

Measures

• Steven Gottheim: ALTA – Senior Counsel

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DisclaimerThis information is not a substitute for legal advice, is for your reference only and is not intended to represent the only approach to any particular issue. This information should not be construed as legal, financial or business advice and users should consult legal counsel and subject-matter experts to be sure that the policies adopted and implemented meet the requirements unique to your company.

1. WHAT IS FINCEN & A GEOGRAPHIC TARGETING ORDER

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2. THE REAL ESTATE GTO

The Basics• Who: All title insurers and their agents• When: August 28, 2016 through February 23, 2017 • Where: 5 counties in CA, 3 counties in FL, 5 counties in NY and 1

county in TX• What: Purchases of real estate by legal entities without a bank

loan for a purchase price at or above a certain dollar threshold in which any part of the purchase price is paid for via currency, cashiers check, a certified check, personal check, business check or a money order

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What changed from the January, 2016 GTO?• There are three main changes between the GTOS.

1. The July GTO covers ALL title insurers & agents instead of select insurers.

2. The covered jurisdictions are expanded beyond Manhattan, NY and Miami-Dade County, FL.

3. Payments made using personal or business checks are covered and reportable.

Covered JurisdictionsCalifornia Florida Texas New York

Los Angeles ‐ $2

million

Broward ‐ $1 million Bexar ‐ $500,000 Bronx ‐ $1.5 million

San Diego ‐ $2

million

Miami‐Dade ‐ $1

million

Brooklyn ‐ $1.5

million

San Francisco ‐ $2

million

Palm Beach ‐ $1

million

Manhattan ‐ $3

million

San Mateo ‐ $2

million

Queens – $1.5

million

Santa Clara ‐ $2

million

Staten Island ‐ $1.5

million

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Who is a Covered Business• All title insurers

– Includes any of its subsidiaries and agents

• Reporting requirement is triggered when the insurer provides title insurance in the transaction

• Only one report is required for each Covered Transaction. – Filed by either the insurer or the agent

Frequently Asked Question• If an independent agent is a title agent for multiple title insurers

that received a GTO, which insurer must report the Covered Transaction?

– Only the insurer that ultimately provides insurance on the transaction is responsible for reporting.

– The agency should look to the insurers underwriting bulletin on reporting obligations

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What is a Covered Transaction1. The buyer must be a Legal Entity, defined under the GTO as a corporation,

limited liability company, partnership or other similar business entity, whether formed under the laws of a state or of the United States or a foreign jurisdiction;

2. Residential real property located in the Covered Jurisdictions; 3. For a purchase price at or above the dollar threshold; 4. Without a loan or similar form of external financing from a financial institution;

and 5. Any portion of the purchase price is paid using currency, cashier’s check,

certified check, traveler’s check, personal check, business check or money order.

Frequently Asked Questions • Is a trust a legal entity?

– No. In most states trusts are not distinct from the trustee.• What does the term “residential real property” mean?

– Real property (including individual units of condominiums and cooperatives) designed principally for the occupancy of from one to four families.

• Does private or seller financing qualify as “a bank loan” under the GTO reporting requirements?

– On a case by case basis. Generally a loan from financial institutions triggers the exemption.

• Are the reporting requirements triggered when the purchase price is paid entirely through a wire transfer?

– No.

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Frequently Asked Questions • Is there a de minimis threshold of currency used in the transaction?

– No. If any portion of the purchase price is paid for via the covered payment methods the deal is reportable.

• What if ancillary settlement services such as the survey, inspection or closing attorneys fee is paid using currency?

– No. Only if part of the purchase price is paid using the covered payment methods.

What must be Reported• Within 30 days following the closing, the covered insurer or its agent

must file a Form 8300 with the following additional information:– Identity of the individual primarily responsible for representing the Legal

Entity; – A description of the identification (driver’s license, passport or other similar

identifying document) obtained from the individual primarily responsible for representing the Purchaser with a copy retained in the file;

– identity of the Purchaser and any Beneficial Owner(s) of the Purchaser’s; – A description of the type of identification, driver’s license, passport or

other similar identifying document, obtained from the Beneficial Owner with a copy retained in the file;

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What must be Reported Continued– Date of closing of the Covered Transaction; – Total amount transferred in the form of a Monetary Instrument; – Total purchase price of the Covered Transaction; and – Address of the real property involved in the Covered Transaction; – Also include the term “REGTO” as a unique identifier for this GTO in the

Comments section.

Frequently Asked Questions • How does the GTO define a beneficial owner?

– An individual who directly or indirectly owns 25% or more of the equity interest in the Legal Entity.

• What if the purchasing entity is owned by a series of legal entities? – Must report the ultimate beneficial owner at the end of the chain.

• Can the insurer rely on information reported by the parties or collected by a third party such as an attorney?

– Yes. A Covered Business may reasonably rely on information provided to it by third parties, including other parties involved in Covered Transactions.

• Must a Covered Business verify information about the Beneficial Owner of a Purchaser?

– A Covered Business must obtain and retain a copy of the Beneficial Owner’s (or all member s of an LLC) driver’s license, passport, or other similar identifying documentation. But does not need to verify their status as a beneficial owner.

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• Who is the “individual primarily responsible for representing the Purchaser”?

– The “individual primarily responsible for representing the Purchaser” means the individual authorized by the entity to enter legally binding contracts on behalf of the entity.

• Is this information subject to an attorney client privilege?– Information necessary for completing a form 8300, Suspicious

Activity Report or other Bank Secrecy Act reporting requirement cannot be withheld from the government due to attorney-client privilege. See United States v. Goldberger & Dublin, P.C., 935 F.2d 501 (2nd Cir. 1991).

Frequently Asked Questions

Compliance • A Covered Business is expected to have reasonably designed

procedures to ensure compliance with the terms of the GTOs– reasonable due diligence to determine whether it (or its

subsidiaries or agents) is involved in a Covered Transaction – to collect and report the required information– may reasonably rely on information provided to it by third parties

• Reports can be shared with law enforcement but are otherwise kept private and are not FOIA accessible

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RESOURCES

22

Covered Transaction Determination

•Assist title company to determine if a transaction is reportable under the GTO

•Document that decision in the file

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Information Gathering Form

• Help gather data for 8300 reporting

• Can be given to purchaser, their attorney or real estate agent

• Document information company relied on when completing 8300

• Electronic fillable form

Other resources• ALTA Fact Sheet

• FinCEN FAQ

• TitleNews cover article “The Hunt for Dark Money”

All resources available at www.alta.org/fincen

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3. IMPACT ON REAL ESTATE MARKETS

Impact on Closings• Should not prevent closings

– Reporting is done post closing• Should be familiar to buyers

– Reporting is similar to the types of information necessary provided to banks for opening an account

• Small segment of the high end market– Wire transfers are already the preferred method of transferring

funds for real estate closings

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